Deck 10: Relevant Information for Decision Making

Question 1

Information that has a bearing on future events is relevant in the decision-making process.

Answer 1

True

Question 2

In a special order decision,the sales price should be sufficient to cover a job's variable costs,incremental fixed costs,and generate a profit.

Answer 2

True

Question 3

In an outsourcing decision,avoidable fixed costs are irrelevant.

Answer 3

False

Question 4

The Robinson-Patman Act prohibits companies from pricing products at different levels when there are no significant differences in production costs.

Question 5

When making a decision to discontinue an operating segment,allocated common costs are not considered.

Question 6

The amount of cost that differs across decision choices is referred to as _________________________.

Question 7

Information that is related to past events is relevant in the decision-making process.

Question 8

Depreciation on factory equipment is normally a relevant cost in product line decisions.

Question 9

In an outsourcing decision,rent received from an outside party for facility use is a relevant cash inflow.

Question 10

The amount of revenue that differs across decision choices is referred to as ______________________________.

Question 11

A company may outsource some of its production in order to focus on core competencies.

Question 12

In setting compensation structures,fixed salary expense is normally not considered.

Question 13

When making a decision to discontinue an operating segment,avoidable fixed costs are not considered.

Question 14

Segment margin measures a segment's contribution to the coverage of indirect expenses.

Question 15

In a special order decision,unavoidable current fixed costs are taken into consideration in setting a sales price.

Question 16

In an outsourcing decision,variable costs of production are relevant.

Question 17

In evaluating alternative courses of action,a manager should select the alternative that provides the highest incremental benefit to the company.

Question 18

When multiple products are produced and sold,a change in the sales price of one product may cause a change in the sales mix of the firm.

Question 19

In an outsourcing decision,unavoidable fixed costs are irrelevant.

Question 20

The outsourcing decision is also referred to as a "make-or-buy" decision.

Question 21

Which of the following costs would be relevant in short-term decision making?

A)incremental fixed costs
B)all costs of inventory
C)total variable costs that are the same in the considered alternatives
D)the cost of a fixed asset that could be used in all the considered alternatives

Question 22

The excess of revenues over direct variable expenses and avoidable fixed expenses is referred to as ______________________________.

Question 23

Irrelevant costs generally include

A)yes yes no
B)yes no no
C)no no yes
D)yes yes yes

Question 24

The relative product quantities composing a company's total sales is referred to as a company's _________________________.

Question 25

A fixed cost is relevant if it is

A)uncontrollable.
B)avoidable.
C)sunk.
D)a product cost.

Question 26

If a cost is irrelevant to a decision,the cost could not be

A)a sunk cost.
B)a future cost.
C)a variable cost.
D)an incremental cost.

Question 27

The potential rental value of space used for production activities

A)is a variable cost of production.
B)represents an opportunity cost of production.
C)is an unavoidable cost.
D)is a sunk cost of production.

Question 28

Costs forgone when an individual or organization chooses one option over another are

A)budgeted costs.
B)sunk costs.
C)historical costs.
D)opportunity costs.

Question 29

Which of the following is not a characteristic of relevant costing information? It is

A)associated with the decision under consideration.
B)significant to the decision maker.
C)readily determined from financial records.
D)related to a future endeavor.

Question 30

The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is

A)the total manufacturing cost of the component.
B)the total variable cost of the component.
C)the fixed manufacturing cost of the component.
D)zero.

Question 31

Most ____ are relevant to decisions to acquire capacity,but not to short-run decisions involving the use of that capacity.

A)sunk costs
B)incremental costs
C)fixed costs
D)prime costs

Question 32

Costs incurred in the past to acquire an asset are referred to as _________________________.

Question 33

A cost is sunk if it

A)is not an incremental cost.
B)is unavoidable.
C)has already been incurred.
D)is irrelevant to the decision at hanD.

Question 34

Which of the following costs would not be accounted for in a company's recordkeeping system?

A)an unexpired cost
B)an expired cost
C)a product cost
D)an opportunity cost

Question 35

Relevant costs are

A)all fixed and variable costs.
B)all costs that would be incurred within the relevant range of production.
C)past costs that are expected to be different in the future.
D)anticipated future costs that will differ among various alternatives.

Question 36

The term incremental cost refers to

A)the profit foregone by selecting one choice instead of another.
B)the additional cost of producing or selling another product or service.
C)a cost that continues to be incurred in the absence of activity.
D)a cost common to all choices in question and not clearly or feasibly allocable to any of them.

Question 37

Which of the following is the least likely to be a relevant item in deciding whether to replace an old machine?

A)acquisition cost of the old machine
B)outlay to be made for the new machine
C)annual savings to be enjoyed on the new machine
D)life of the new machine

Question 38

When a company has work performed by an external supplier,it is engaging in ____________________.

Question 39

In deciding whether an organization will keep an old machine or purchase a new machine,a manager would ignore the

A)estimated disposal value of the old machine.
B)acquisition cost of the old machine.
C)operating costs of the new machine.
D)estimated disposal value of the new machine.

Question 40

The benefits foregone when one course of action is chosen over another are referred to as ______________________________.

Question 41

In a make or buy decision,the opportunity cost of capacity could

A)be considered to decrease the price of units purchased from suppliers.
B)be considered to decrease the cost of units manufactured by the company.
C)be considered to increase the price of units purchased from suppliers.
D)not be considered since opportunity costs are not part of the accounting records.

Question 42

Which of the following are relevant in a make or buy decision?

A)no yes yes
B)yes no yes
C)no no yes
D)yes yes no

Question 43

An increase in direct fixed costs could reduce all of the following except

A)product line contribution margin.
B)product line segment margin.
C)product line operating income.
D)corporate net income.

Question 44

In a make or buy decision,the reliability of a potential supplier is

A)an irrelevant decision factor.
B)relevant information if it can be quantified.
C)an opportunity cost of continued production.
D)a qualitative decision factor.

Question 45

Assume a company produces three products: A,B,and C.It can only sell up to 3,000 units of each product.Production capacity is unlimited.The company should produce the product (or products)that has (have)the highest

A)contribution margin per hour of machine time.
B)gross margin per unit.
C)contribution margin per unit.
D)sales price per unit.

Question 46

In evaluating the profitability of a specific organizational segment,all ____ would be ignored.

A)segment variable costs
B)segment fixed costs
C)costs allocated to the segment
D)period costs

Question 47

For a particular product in high demand,a company decreases the sales price and increases the sales commission.These changes will not increase

A)sales volume.
B)total selling expenses for the product.
C)the product contribution margin.
D)the total variable cost per unit.

Question 48

The ____ prohibits companies from pricing products at different amounts unless these differences reflect differences in the cost to manufacture,sell,or distribute the products.

A)Internal Revenue Service
B)Governmental Accounting Office
C)Sherman Antitrust Act
D)Robinson-Patman Act

Question 49

Which of the following costs is irrelevant in making a decision about a special order price if some of the company facilities are currently idle?

A)direct labor
B)equipment depreciation
C)variable cost of utilities
D)opportunity cost of production

Question 50

When a company discontinues a segment,total corporate costs may decrease in all of the following categories except

A)variable production costs.
B)allocated common costs.
C)direct fixed costs.
D)variable period costs.

Question 51

An outside firm selected to provide services to an organization is called a

A)contract vendor.
B)lessee.
C)network organization.
D)centralized insourcer.

Question 52

The minimum selling price that should be acceptable in a special order situation is equal to total

A)production cost.
B)variable production cost.
C)variable costs and avoidable fixed costs.
D)production cost plus a normal profit margin.

Question 53

Which of the following activities within an organization would be least likely to be outsourced?

A)accounting
B)data processing
C)transportation
D)product design

Question 54

Contracting with vendors outside the organization to obtain or acquire goods and/or services is called

A)target costing.
B)insourcing.
C)outsourcing.
D)product harvesting.

Question 55

An ad hoc sales discount is

A)an allowance for an inferior quality of marketed goods.
B)a discount that an ad hoc committee must decide on.
C)brought about by competitive pressures.
D)none of the above.

Question 56

Fixed costs are ignored in allocating scarce resources because

A)they are sunk.
B)they are unaffected by the allocation of scarce resources.
C)there are no fixed costs associated with scarce resources.
D)fixed costs only apply to long-run decisions.

Question 57

When a scarce resource,such as space,exists in an organization,the criterion that should be used to determine production is

A)contribution margin per unit.
B)selling price per unit.
C)contribution margin per unit of scarce resource.
D)total variable costs of production.

Question 58

Which of the following qualitative factors favors the buy choice in a make or buy decision for a part?

A)maintaining a long-term relationship with suppliers
B)quality control is critical
C)utilization of idle capacity
D)part is critical to product

Question 59

A manager is attempting to determine whether a segment of the business should be eliminated.The focus of attention for this decision should be on

A)the net income shown on the segment's income statement.
B)sales minus total expenses of the segment.
C)sales minus total direct expenses of the segment.
D)sales minus total variable expenses and avoidable fixed expenses of the segment.

Question 60

Which of the following are relevant in a make or buy decision?

A)yes yes yes
B)yes no yes
C)yes no no
D)no no yes

Question 61

Collins Company uses 12,000 units of a part in its production process.The costs to make a part are: direct material,$15;direct labor,$27;variable overhead,$15;and applied fixed overhead,$32.Eichholtz has received a quote of $60 from a potential supplier for this part.If Collins buys the part,75 percent of the applied fixed overhead would continue.Collins Company would be better off by

A)$30,000 to manufacture the part.
B)$348,000 to buy the part.
C)$60,000 to buy the part.
D)$216,000 to manufacture the part.

Question 62

Graham Company has 15,000 units in inventory that had a production cost of $3 per unit.These units cannot be sold through normal channels due to a significant technology change.These units could be reworked at a total cost of $23,000 and sold for $28,000.Another alternative is to sell the units to a junk dealer for $8,500.The relevant cost for Graham to consider in making its decision is

A)$45,000 of original product costs.
B)$23,000 for reworking the units.
C)$68,000 for reworking the units.
D)$28,000 for selling the units to the junk dealer.

Question 63

Eichholtz Company uses 10,000 units of a part in its production process.The costs to make a part are: direct material,$12;direct labor,$25;variable overhead,$13;and applied fixed overhead,$30.Eichholtz has received a quote of $55 from a potential supplier for this part.If Eichholtz buys the part,70 percent of the applied fixed overhead would continue.Eichholtz Company would be better off by

A)$50,000 to manufacture the part.
B)$150,000 to buy the part.
C)$40,000 to buy the part.
D)$160,000 to manufacture the part.

Question 64

Gallagher Company produces a part that has the following costs per unit:

Homeland Corporation can provide the part to Gallagher for $19 per unit.Gallagher Company has determined that 60 percent of its fixed overhead would continue if it purchased the part.However,if Gallagher no longer produces the part,it can rent that portion of the plant facilities for $60,000 per year.Gallagher Company currently produces 10,000 parts per year.Which alternative is preferable and by what margin?

A)Make-$20,000
B)Make-$50,000
C)Buy-$10,000
D)Buy-$40,000

Question 65

Engel Company has 3 divisions: A,B,and C.Division A's income statement shows the following for the year ended December 31:

Cost of goods sold is 80 percent variable and 20 percent fixed.Of the fixed costs,50 percent are avoidable if the division is closed.All of the selling expenses relate to the division and would be eliminated if Division A were eliminated.Of the administrative expenses,85 percent are applied from corporate costs.If Division A were eliminated,Engel's income would

A)increase by $100,000.
B)decrease by $197,500.
C)decrease by $310,000.
D)decrease by $422,500.

Question 66

Buxton Company is currently operating at a loss of $15,000.The sales manager has received a special order for 5,000 units of product,which normally sells for $35 per unit.Costs associated with the product are: direct material,$6;direct labor,$10;variable overhead,$3;applied fixed overhead,$4;and variable selling expenses,$2.The special order would allow the use of a slightly lower grade of direct material,thereby lowering the price per unit by $1.50 and selling expenses would be decreased by $1.If Buxton wants this special order to increase the total net income for the firm to $10,000,what sales price must be quoted for each of the 5,000 units?

A)$23.50
B)$24.50
C)$27.50
D)$34.00

Question 67

Wightman Industries has two sales territories-East and West.Financial information for the two territories is presented below:

Because the company is in a start-up stage,corporate management feels that the East sales territory is creating too much of a cash drain on the company and it should be eliminated.If the East territory is discontinued,one sales manager (whose salary is $40,000 per year)will be relocated to the West territory.By how much would Wightman's income change if the East territory is eliminated?

A)increase by $88,000
B)increase by $48,000
C)decrease by $267,000
D)decrease by $227,000

Question 68

Athmer Corporation
Athmer Corporation sells a product for $18 per unit,and the standard cost card for the product shows the following costs:

Refer to Athmer Corporation.Assume that Athmer has sufficient idle capacity to produce the 1,000 units.If Athmer wants to increase its operating profit by $5,600,what would it charge as a per-unit selling price?

A)$18.00
B)$10.00
C)$11.00
D)$16.60

Question 69

McCoy Corporation
McCoy Corporation sells a product for $21 per unit,and the standard cost card for the product shows the following costs:

Refer to McCoy Corporation.McCoy received a special order for 1,200 units of the product.The only additional cost to McCoy would be foreign import taxes of $2 per unit.If McCoy is able to sell all of the current production domestically,what would be the minimum sales price that McCoy would consider for this special order?

A)$10.00
B)$15.00
C)$21.00
D)$23.00

Question 70

Savannah Motors
Savannah Motors is trying to decide whether it should keep its existing car washing machine or purchase a new one that has technological advantages (which translate into cost savings)over the existing machine.Information on each machine follows:

Refer to Savannah Motors.The $20,000 cost of the new machine represents a(n)

A)sunk cost.
B)future relevant cost.
C)future irrelevant cost.
D)opportunity cost.

Question 71

Beauty Tools Corporation makes and sells brushes and combs.It can sell all of either product it can make.The following data are pertinent to each respective product:

Total fixed overhead is $380,000.
The company has 40,000 machine hours available for production.What sales mix will maximize profits?

A)320,000 brushes and 0 combs
B)0 brushes and 800,000 combs
C)160,000 brushes and 600,000 combs
D)252,630 brushes and 252,630 combs

Question 72

McCoy Corporation
McCoy Corporation sells a product for $21 per unit,and the standard cost card for the product shows the following costs:

Refer to McCoy Corporation.Assume that McCoy has sufficient idle capacity to produce the 1,200 units.If McCoy wants to increase its operating profit by $6,000,what would it charge as a per-unit selling price?

A)$15.00
B)$17.00
C)$21.00
D)$23.00

Question 73

Marshall Company has only 30,000 hours of machine time each month to manufacture its two products.Product X has a contribution margin of $60,and Product Y has a contribution margin of $72.Product X requires 6 hours of machine time,and Product Y requires 10 hours of machine time.If Marshall Company wants to dedicate 85 percent of its machine time to the product that will provide the most income,the company will have a total contribution margin of

A)$216,000
B)$228,600.
C)$287,400
D)$300,000

Question 74

Denver Boot Corporation has been asked to submit a bid on supplying 1,000 pairs of military combat boots to the Armed Forces Training Center.The company's costs per pair of boots are as follows:

Assuming that there would be no commission on this potential sale,the lowest price the firm can bid is some price greater than

A)$23.
B)$20.
C)$17.
D)$14.

Question 75

Glover Company produces a part that has the following costs per unit:

London Corporation can provide the part to Glover for $23 per unit.Glover Company has determined that 50 percent of its fixed overhead would continue if it purchased the part.However,if Glover no longer produces the part,it can rent that portion of the plant facilities for $70,000 per year.Glover Company currently produces 12,000 parts per year.Which alternative is preferable and by what margin?

A)Make-$24,000
B)Make-$60,000
C)Buy-$10,000
D)Buy-$46,000

Question 76

Athmer Corporation
Athmer Corporation sells a product for $18 per unit,and the standard cost card for the product shows the following costs:

Refer to Athmer Corporation.Athmer received a special order for 1,000 units of the product.The only additional cost to Athmer would be foreign import taxes of $1 per unit.If Athmer is able to sell all of the current production domestically,what would be the minimum sales price that Athmer would consider for this special order?

A)$18.00
B)$11.00
C)$5.40
D)$19.00

Question 77

Savannah Motors
Savannah Motors is trying to decide whether it should keep its existing car washing machine or purchase a new one that has technological advantages (which translate into cost savings)over the existing machine.Information on each machine follows:

Refer to Savannah Motors.The $4,000 of annual operating costs that are common to both the old and the new machine are an example of a(n)

A)sunk cost.
B)irrelevant cost.
C)future avoidable cost.
D)opportunity cost.

Question 78

Phillips Company has 3 divisions: X,Y,and Z.Division X's income statement shows the following for the year ended December 31:

Cost of goods sold is 75 percent variable and 25 percent fixed.Of the fixed costs,60 percent are avoidable if the division is closed.All of the selling expenses relate to the division and would be eliminated if Division X were eliminated.Of the administrative expenses,90 percent are applied from corporate costs.If Division X were eliminated,Phillips's income would

A)increase by $150,000.
B)decrease by $ 75,000.
C)decrease by $155,000.
D)decrease by $215,000.

Question 79

Kelly Company has 20,000 units in inventory that had a production cost of $4 per unit.These units cannot be sold through normal channels due to a significant technology change.These units could be reworked at a total cost of $30,000 and sold for $35,000.Another alternative is to sell the units to a junk dealer for $10,500.The relevant cost for Kelly to consider in making its decision is

A)$80,000 of original product costs.
B)$30,000 for reworking the units.
C)$110,000 for reworking the units.
D)$35,000 for selling the units to the junk dealer.

Question 80

Lewis Company has only 25,000 hours of machine time each month to manufacture its two products.Product X has a contribution margin of $50,and Product Y has a contribution margin of $64.Product X requires 5 hours of machine time,and Product Y requires 8 hours of machine time.If Lewis Company wants to dedicate 80 percent of its machine time to the product that will provide the most income,the company will have a total contribution margin of

A)$250,000.
B)$240,000.
C)$210,000.
D)$200,000.